Brown and Mushallo said the financial outlook for the next five years is tenuous, especially as the council tries to reach a goal of putting aside at least a 15 percent reserve. Currently, reserves are just under $1 million, less than 3 percent.

Home prices rose in west Petaluma by nearly 20 percent last year, while the east side rose 23 percent, resulting in almost $130,000 more property taxes than expected.

Commercial space is filling up, at 22 percent vacant at the end of 2013 compared with 35 percent in 2009.

Petaluma's unemployment rate of 5.5 percent is below the county's 6 percent and the statewide rate, 8.3 percent &amp;#8211; and is down from a high of 10 percent in 2010.

On the other side of the ledger, though, expenditures rose by nearly as much as revenue.

Salaries and benefit costs increased by more than $700,000, mainly because of a handful of new positions added in the new in-house city attorney department.

An additional $400,000 is being earmarked for storm water maintenance, a change from years past in which funds from sewer and water ratepayers funded the work.

The budget for services and supplies was increased by $645,000, for public safety and public works departments, as well as downtown sidewalk cleaning and beautification efforts.

City officials likely will put a sales-tax increase on the November ballot to fund city services.

Brown and Mushallo said the financial outlook for the next five years is tenuous, especially as the council tries to reach a goal of putting aside at least a 15 percent reserve. Currently, reserves are just under $1 million, less than 3 percent.